SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended October 31, 1998 Commission File Number 0-19122
APHTON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3640931
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
444 Brickell Avenue, Suite 51-507 33131-2492
Miami, Florida (Zip Code)
(address of principal executive offices)
Registrant's telephone number, including area code (305)374-7338
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes No __
The number of shares of Common Stock outstanding as of the close of
business on December 7, 1998:
Class Number of
Shares outstanding
Common Stock, no par value 14,431,784
APHTON CORPORATION
Index
Page
Part I - Financial Information 3
Item 1. Financial Statements:
Balance Sheets - October 31, 1998 and January 31, 1998 3
Statements of Operations - Three and nine months ended
October 31, 1998 and 1997 4
Statements of Stockholders' Equity - Nine months ended
October 31, and January 31, 1998 5
Statements of Cash Flows - Nine months ended October 31, 1998
and 1997 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II - Other Information
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
Signature Page 8
APHTON CORPORATION
Part I - Financial Information
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the financial statements
include all adjustments necessary to present fairly the financial position of
the Company as of October 31, 1998 and January 31, 1998 and the results of its
operations and its cash flows for the three and nine months ended October 31,
1998 and 1997. The January 31, 1998 balance sheet data was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principles It is suggested that these financial statements
be read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
APHTON CORPORATION
Balance Sheets - October 31, 1998 and January 31, 1998
October 31, January 31,
1998 1998
Assets
Current Assets:
Cash and short-term cash investments $12,337,740 $14,226,000
Other assets (including current portion of
unconditional supply commitment) 612,096 205,454
Total current assets 12,949,836 14,431,454
Equipment and improvements, at cost,
net of accumulated depreciation
and amortization 226,346 197,736
Unconditional supply commitment 8,951,000 8,951,000
Total assets $22,127,182 $23,580,190
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities:
Accounts payable and other $2,876,851 $2,273,072
Total current liabilities 2,876,851 2,273,072
Deferred revenue 10,000,000 10,000,000
Total liabilities 12,876,851 12,273,072
Commitment
Stockholders' Equity:
Common stock, $0.001 par value -
Authorized: 30,000,000 shares
Issued and outstanding: 14,431,784
shares at October 31, 1998 and
14,191,217 at January 31, 1998 14,432 14,191
Additional paid in capital 47,960,141 42,955,207
Purchase warrants 336,904 341,404
Accumulated deficit (39,061,146) (32,003,684)
Total stockholders' equity 9,250,331 11,307,118
Total liabilities and
stockholders' equity $22,127,182 $23,580,190
APHTON CORPORATION
Statements of operations
for the three and nine months ended October 31, 1998 and 1997
Three Months Ended Nine Months Ended
October 31, October 31,
Revenue: 1998 1997 1998 1997
Dividend, interest
and other income $152,933 $198,999 $441,073 $416,742
Total 152,933 198,999 441,073 416,742
Costs and Expenses:
Research and
development expense 2,026,636 1,262,789 6,486,871 4,076,111
General and
administrative expense 425,653 192,734 1,011,664 508,372
Non-cash interest and
amortized interest
expense of convertible
security 791,209 1,586,341
Total costs
and expenses 2,452,289 2,246,732 7,498,535 6,170,824
Net loss $(2,299,356) $(2,047,733) $(7,057,462) $(5,754,082)
Basic and diluted
loss per common and
common equivalent share $(0.16) $(0.15) $(0.49) $(0.43)
Weighted average number
of common shares
outstanding 14,431,117 13,754,876 14,297,613 13,353,781
The Company has adopted SFAS No. 128, "Earnings per Share," which specifies the
computation, presentation and disclosure requirements for earnings per share.
The Company's basic loss per common share was calculated by dividing net loss by
the weighted average number of common shares outstanding. The Company's common
stock equivalents, which consist of 2,015,600 purchase warrants, could
potentially dilute basic earnings per share in the future and were not included
in the computation of diluted earnings per share because to do so would have
been antidilutive for the periods presented.
APHTON CORPORATION
Statements of stockholders' equity
for the nine months ended October 31, 1998
and for the nine months ended January 31, 1998
Common Stock Additional
Paid in Purchase Accumulated
Shares Amount Capital Warrants Deficit Total
Balance,
May 1, 1997 12,913,149 $26,665,091 $1,097,560 $147,004 $(25,399,140)$2,510,515
Sale of
stock, net 715,000 10,000,000 - - - 10,000,000
Issuance of
purchase
warrants
for services
- - 198,900 - - 198,900
Exercise of
purchase
warrants 1,000 4,000 5,500 (4,500) - 500
Transfer between
equity accounts
resulting from a
change in the par
value of the stock - (41,857,647)41,857,647 - - -
Conversion of
convertible
debt 559,068 5,201,247 - - - 5,201,247
Net loss - - - - (6,604,544) (6,604,544)
Balance,
January 31,
1998 14,191,217 14,191 42,955,207 341,404 (32,003,684) 11,307,118
Exercise of
purchase
warrants 2,700 3 5,172 (4,500) - 675
Sale of stock,
net 237,867 238 4,999,762 - - 5,000,000
Net loss - - - - (7,057,462)(7,057,462)
Balance,
October 31,
1998 14,431,784 $14,432 $47,960,141$336,904$(39,061,146) $9,250,331
APHTON CORPORATION
Statements of cash flows for the nine months ended October 31, 1998 and 1997
Increase (decrease) in cash and short-term cash investments
Nine Months Ended October 31,
1998 1997
Net cash used in operating activities $(6,799,077) $(3,186,551)
Net cash provided by non-operating
activities-financing 5,000,675 14,669,157
Net cash used by non-operating
activities-investing (89,858) (107,496)
Net change in cash and short-term
cash investments (1,888,260) 11,375,110
Cash and short-term cash investments:
Beginning of period 14,226,000 4,385,787
End of period $12,337,740 $15,760,897
Reconciliation of net loss to net cash used in operating activities
Net loss $(7,057,462) $(5,754,082)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash interest expense settled by
issuance of stock - 153,825
Amortized (non-cash) interest
expense of convertible security - 1,385,060
Depreciation 61,248 60,555
Changes in-
Cash receipt treated as deferred revenue - 1,000,000
Other assets (406,642) 26,671
Accounts payable and other 603,779 (58,580)
Net cash used in operating activities $(6,799,077) $(3,186,551)
In the nine months ended October 31, 1997, the Company issued 11,191 shares of
stock in settlement of accrued interest of $153,825.
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
General
Aphton Corporation is a biopharmaceutical company developing products using its
innovative vaccine-like technology for neutralizing hormones that participate in
gastrointestinal system and reproductive system cancer and non-cancer diseases;
and the prevention of pregnancy. Aphton has strategic alliances with Pasteur
Merieux Connaught (Rhone-Poulenc Group), SmithKline Beecham, Schering Plough
Animal Health and the World Health Organization (WHO). Aphton's Web page,
describing the company, its technology, products, strategic alliances, news
releases and listing reports of independent brokerage research analysts, can be
visited at: www.aphton.com ; or, you may call us at 305-374-7338 and Aphton's
Investor Services will mail you an investor packet.
Background / Major Results
Results of Operations The Company's total costs and expenses increased from
$6,170,824 to $7,498,535 for the nine months ended October 31, 1998 over the
corresponding period of the prior year. This 22% increase was due primarily to
increased research and development activities. Research and development expenses
during that period increased from $4,076,111 to $6,486,871. This 59% increase
was due to increased clinical trial (development) activity. Non-cash interest
and amortized interest expense relating to a convertible security decreased
$1,586,341 to zero due to the conversion of the convertible security to equity
in fiscal 1998. At October 31, 1998 there was approximately $483,000 due to
Aphton from SmithKline Beecham for product development costs incurred by Aphton.
(See Strategic Alliances, below.)
Safety / Dose Ranging See Web page for previously announced results.
Survival See Web page for previously announced results.
Trials
Gastrointestinal Cancers
Aphton announced in November, 1998, that it has started a Phase III clinical
trial program for the indication of pancreatic cancer in the UK and expects to
expand the trial to multiple centers in the US and elsewhere in Europe during
1999.
Prostate Cancer
In October, 1998, Aphton announced the start of a Phase I/II clinical trial
program in the UK for the prostate cancer indication with Aphton's anti-GnRH
immunogen, as part of the previously reported strategic alliance with SmithKline
Beecham. This phase of the program focuses on safety, dose-ranging and
preliminary efficacy (testosterone marker). Aphton expects that the trial will
be expanded into the US and elsewhere in Europe in the first half of 1999.
Strategic Objectives
See Web page for previous announcement in June, 1998, on achievement of
management's strategic objectives for calendar 1998, exclusive of operations.
Strategic Alliances
On June 19, 1998, in a joint news release with SmithKline Beecham PLC (SB),
Aphton announced its worldwide collaboration and license agreement for the
diagnosis, treatment and prevention of GnRH-related cancers and other diseases
in humans. These reproductive system diseases include prostate, breast, ovarian
and endometrial cancers, and endometriosis (non-cancer). Aphton also has
strategic alliances with Pasteur Merieux Connaught (Rhone-Poulenc Group),
Schering Plough Animal Health and the World Health Organization (WHO). Aphton's
Web page, describing the company, its technology, products, strategic alliances,
news releases and listing reports of independent brokerage research analysts,
can be visited at: www.aphton.com ; or, you may call us at 305-374-7338 and
Aphton'[s Investor Services will mail you an investor packet.
Wall Street Research Coverage
Morgan Stanley Dean Witter initiated research coverage of Aphton in June, 1998.
Aphton's Web page, describing the company, its technology, products, strategic
alliances, news releases and listing reports of independent brokerage research
analysts, can be visited at: www.aphton.com ; or, you may call us at
305-374-7338 and Aphton's Investor Services will mail you an investor packet.
Year 2000 and Other Issues
Many computer programs were written to use only two digits to identify the year.
Thus, a computer program could read the digits "00" as the year 2000 or as the
year 1900. In addition, microprocessors embedded in many operating facilities
such as communication systems may cause equipment malfunctions because of the
year 2000 date change. Failure by third parties upon which the Company relies
(or by the Company) to address the year 2000 issue could cause material loss to
the Company.
Management has completed the awareness and assessment phase of a comprehensive
program to address the year 2000 issue. The Company utilizes standard
"off-the-shelf" software and will implement any necessary vendor upgrades and
modifications to assure continued functionality. At present, management does not
expect that material incremental costs will be incurred in the aggregate or in
any single future year.
The Company has also begun to assess the year 2000 compliance efforts of
external parties upon which the Company relies. The Company is developing
contingency plans for addressing any material failure to deal with the year 2000
date change that will address the Company's exposure to year 2000 noncompliance
by third parties.
Even though the Company's planned software and hardware modifications and system
upgrades should adequately address year 2000 issues, there can be no assurance
that unforeseen difficulties will not arise. There is no assurance that the
failure of any external party to resolve its year 2000 issues would not have a
material adverse effect on the Company.
Although the Company does not own or engage in the trading of derivative
instruments or hedging activities we note that in June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133 requires the recognition of all derivative instruments as either assets or
liabilities in the statement of financial position and measurement of those
derivative instruments at fair value. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The adoption of this
standard will not effect the Company's financial statements.
Inflation and changing prices have not had a significant effect on continuing
operations and are not expected to have any material effect in the foreseeable
future. The anticipated change in European currency is not expected to have any
impact on continuing operations. Dividend, interest and other income were
primarily derived from money-market accounts.
Liquidity and Capital Resources
The Company had financed its operations since inception through the sale of its
equity securities and, to a lesser extent, operating revenues from R&D limited
partnerships to conduct research and development. These funds provided the
Company with the resources to acquire staff, construct its research and
development facility, acquire capital equipment and to finance technology and
product development, manufacturing and clinical trials.
In the two years ended October 31, 1998 the Company sold stock for $20,000,000
through private placements and a convertible debenture. In addition, the Company
has received commitments from strategic partners SmithKline Beecham, Pasteur
Merieux Connaught and Schering Plough Animal Health to fund certain product
development costs.
The Company anticipates that its existing capital resources which are composed
primarily of cash and short-term cash investments, including the proceeds of its
private placements and interest thereon, would enable it to maintain its
currently planned operations into the year 2000. The Company's working capital
and capital requirements will depend upon numerous factors, including the
following: the progress of the Company's research and development program,
preclinical testing and clinical trials; the timing and cost of obtaining
regulatory approvals; the levels of resources that the Company devotes to
product development, manufacturing and marketing capabilities; technological
advances; competition; and collaborative arrangements or strategic alliances
with other drug companies, including the further development, manufacturing and
marketing of certain of the Company's products and the ability of the Company to
obtain funds from such strategic alliances or from other sources.
PART II - Other information
Item 1. Legal Proceedings. Not applicable.
Item 2. Changes in Securities. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders. Not applicable.
Item 5. Other Information. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibit Numbers
27.1 Financial Data Schedule
b. There were no reports on Form 8-K filed during
the quarter for which this report is filed.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Aphton Corporation
Date: December 7, 1998 By: /s/ Frederick W. Jacobs
----------------------
Frederick W. Jacobs
Treasurer and Chief
Accounting Officer
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This schedule contains summary financial information extracted from the Annual
Report on Form 10-K for the nine month fiscal period ended January 31, 1998 and
the Quarterly Report on Form 10-Q for the quarter and nine months ended October
31, 1998 and is qualified in its entirety by reference to such financial
statements.
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